Dual-Class Structure

From the discussion of above, we realized dual-class structure violates the fundamental principle that public investors have the right and ability to control the business entities that is consistent with their economic interest in the firms. And based on the empirical view, Harvard's Paul Gompers and two colleagues had been proved in their research in 2004 that among a large sample of U.S. firms, the disproportionate voting control for insiders afforded by dual-class structures correlated with poorer corporate performance. However, how come the dual-class structures are still applied in Canadian corporations and the proportion of companies having dual-class features are up to 6% of total listed companies in TSX. One of the reason is that transferring from one capital structure to another takes time, it involves thousands complex issues of changing, especially for big firms which would like to keep the companies in stable paces. However, in the case of Magna, a global Auto part maker giant, the management applied an extremely high lump-sum payment way to solve the dual class structures which is questioned by institutional shareholders and how to evaluate the compensation for giving up the dual-class voting right are still controversial.

In the case of Magna, the combined value of the payout was $983 million.

Cash Payout $300 million

9 million common shares @ US$62.532 $563 million

Four year Consulting Contract $120 million

Total $983 million

Appling the stock price in May 5, 2010 listed in stock exchange as the reference, the value of Stronach equity was $45.45 million. Therefore, the return on the Stronach was 2063% ($983/$45.45-1), exchanging it for $983 million compensation. "The average premium of class B over class A shares equals 6.42% over the 10 years prior to the class B shares being delisted in 2007, a reasonable estimate of their value would have been $66.54. That is 6.42% higher than the class A stock price of US$62.53. With the adjusted B price, the value of the 726,829 shares of Stronach Trust would be $48.36 million. The gain still would have been 1,933%."

Then let us take look the number in another way. In the history of Canadian market, there are 31 previous cases